Office, Hotel Defaults Push CMBS to 3.86% Delinquent: Fitch

Large office and hotel defaults led the delinquency rate among commercial mortgage-backed securities (CMBS) up another 28 bps in October, according to the latest index results from Fitch Ratings. The overall late-pay rate among US CMBS is now 3.86%, according to Fitch’s delinquency index of 1,910 Fitch-rated CMBS loans totaling $17.8bn. The office sector saw a 19.4% additional delinquencies this month, as the hotel sector followed with 16.5% more delinquencies. “Though longer leases on office properties have historically mitigated sharp changes in performance, continued job losses are expected to increase pressure on the office sector,” said managing director and US CMBS  group head, Susan Merrick. “With the looming possibility of leases expiring on space under-utilized by companies that have downsized, office performance may not reach a trough for a few years.” Despite the leap in delinquencies among office properties, the sector claimed the lowest overall delinquency rate in October: 2.29%, according to Fitch. Industrial properties followed at 3.09% delinquent, while retail claimed a close third at 3.55%. Multifamily properties, including apartments, were 6% delinquent in the month, while the hotel sector led all other property types at 6.81%. Fitch indicated nine delinquent loans over $100m continue to drive the hotel sector’s weak performance. Newly delinquent hotel loans included three related Red Roof Inn loans totaling $292.8m, which became 60 days delinquent in October after reverting to 30 days in September. The largest newly delinquent loan in the overall index studied by Fitch is Riverton Apartments, a $225m loan on a 1,230-unit rent-stabilized multifamily housing project in Harlem, NY. The loan transferred to special servicing in August 2008 when the borrower failed to convert rent-stabilized units to deregulated units as quickly as projected, according to Fitch. Until now, the loan used debt service reserves to remain current, but slipped into delinquency in October. Fitch’s delinquency results come as the US securitization industry is looking for a pick-up in new CMBS activity with a potential wave of new issuance made possible by a federal lending program later this month. Write to Diana Golobay.

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